With numerous challenges over the past several years for producers, we at Mercer Landmark understand the need for a comprehensive risk management solution. We seek to provide our customers with unparalleled service to ensure maximum results.

Archive for January, 2014

This week, Congress will vote on a massive farm bill that will set the course of U.S. food policy for the next half-decade. The old farm bill expired in 2012, and its replacement (pdf) is 959 pages long, costing some $956.4 billion over 10 years.

So what’s actually in it? I’ve made a pie chart below to outline the basics. This is based on the latest Congressional Budget Office’s scoring as well as reporting on how its predecessor House and Senate bills got combined.

First, some clarification: Under existing law, the United States was already on pace to spend $972.9 billion on these programs over the next decade. So the bill before Congress would technically cut spending, relative to that baseline, by about $16.5 billion.

How does it do that? Well, food stamps are cut by $8 billion (relative to current law). Farm subsidy and commodity programs are cut by $14 billion. Conservation programs get cut by $4 billion. And crop insurance is increased by about $6 billion.

But there’s still a lot of spending left — about $950 billion in all. So here’s a breakdown of what we know about the farm legislation’s various provisions:

Food stamps and nutrition,$756 billion over 10 years($8 billion less than existing law). This is by far the biggest part of farm policy, with the bulk taken up by the Supplemental Nutrition Assistance Program, which helps low-income families pay for food.

House Republicans and Senate Democrats have long wrangled over how to modify this program. The Senate wanted to slightly tweak some of the rules governing eligibility and cut just $4 billion from existing law. The House wanted to put in place much stronger restrictions on who could get food stamps and cut $40 billion from current law.

The Senate mostly won this fight. The compromise bill will cut $8 billion over 10 years. It does that in a few ways:

– Ending the heating “loophole.”The bill would cut food stamp benefits for 850,000 households in 17 states by about $90 per month. It does so by tweaking the rules of a federal heating assistance program that some states had been using to boost food-stamp eligibility. In essence, some states had been assuming that people had higher heating bills than they actually did to let them qualify for food aid. (See here for the gritty details.)

– New programs for the jobless.It creates pilot programs that would encourage food-stamp recipients to look for jobs. The bill would also use some of the savings to set up new nutrition programs.

Overall, the bill avoids most of the sharper cuts that were in the earlier House bill (such as a proposed limit on benefits for unemployed childless adults that would have affected 1.7 million people).

In past years, this was an even bigger chunk of various farm bills, which often provided “direct payments” to farmers regardless of how much they actually planted or how much they would sell their crops for. This latest farm bill would cut most of these direct payments, saving about $19 billion over 10 years.

Those cuts are arguably the biggest policy change in the farm bill — and they’re controversial among farmers. Many of the savings have been channeled into other types of farm aid, including billions of dollars in disaster assistance for livestock producers and subsidized loans for farmers. Meanwhile, the crop insurance program has been expanded (see below).

Notably, the bill would also abandon the 70-year-old practice of setting minimum prices for milk, cheese, and butter. Instead, the bill would offer insurance to dairy farmers to protect themselves against falling milk prices or rising feed costs.

Crop insurance, $90 billion over 10 years ($7 billion more than existing law). For decades, farmers have been able to buy federally-subsidized crop insurance in case their crops fail or prices decline. But under the new farm bill, the government would also spend an additional $7 billion over 10 years covering the deductibles that farmers have to pay before the insurance kicks in. This is supposed to help cushion the blow from the loss of direct payments.

This is one of the more contentious parts of the farm bill. Some critics have warned that this insurance program could cost far more than expected, depending on how crop prices shift. And the Environmental Working Group has argued that a disproportionate amount of these subsidies go to the wealthiest farm operators.

Conservation, $57.6 billion over 10 years ($4 billion less than existing law). This includes programs to help farmers protect against soil erosion and to use ecologically friendly methods like drip irrigation. It also includes programs that pay farmers to grow on less land.

This part of the farm bill was cut by about $4 billion (compared with previous bills) — in part because the government will be supervising a smaller total area. There’s also a fair bit of consolidation here: 23 different conservation programs will be shrunk into 13 programs

Trade, $3.5 billion over 10 years(little change). This money is used to promote U.S. crops overseas and provide food aid abroad. The government also offers some technical assistance to farmers in developing countries.

President Obama had earlier called for an overhaul of the food aid program. Instead of buying food from U.S. farmers and shipping it overseas, some of the money would just be sent directly to poor countries. But those reform efforts foundered, and Congress ended up keeping the food-aid program intact, albeit with an extra $80 million per year to buy food locally in developing countries.

Energy, $1.1 billion over 10 years(a small cut). This includes money for biofuels as well as for energy-efficiency programs in rural areas. It also provides funding to help develop biochemicals and bioplastics industries, in an attempt to reduce the country’s reliance on fossil fuels.

Miscellaneous, about $2.3 billion over 10 years. This includes everything from forestry programs to rural development to research and development. There are programs for promoting farmers markets, selling off timber on federal lands, and even research into organic agriculture and citrus diseases.

My colleague Ed O’Keefe has a nice rundown of some of the more random provisions in the bill. The bill will allow colleges and universities to grow industrial hemp for research purposes in 11 states. The Department of Agriculture will also “increase the purchase” of halal and kosher foods for its emergency assistance program.

Severely cold weather, transportation issues and high demand across the Midwest have significantly driven up the price of propane recently, says the U.S. Energy Information Administration.

According to EIA information released Thursday, the Midwest spot price of propane at the Midwest’s key supply hub in Conway, Kan., has spiked far above the Gulf Coast spot price at the southern hub in Mont Belvieu, Texas.

The price increases began to surface last fall as a late corn harvest during cold and wet conditions prompted more grain drying and more demand from the Midwest.In fact, EIA says for the week ending Nov. 1, 2013, Midwest propane inventories dropped more than 2 million barrels, the largest single-week stock draw in any November since 1993. This demand prompted a strong upward price response, and propane at Conway moved to a 3-cent-per-gallon premium over Mont Belvieu during the first week of November, the first such premium in almost three years.

After harvest, EIA says logistical problems prevented the region from fully replenishing inventories before the onset of winter.

The Cochin Pipeline, which supplies propane to the Midwest from Canada, was out of service for maintenance from late November to Dec. 20 and unavailable to deliver supplies. Rail transportation disruptions, both due to weather and other factors, curtailed deliveries from Mont Belvieu and Conway, as well as from Canada, EIA says.

The most recent cold weather increased space-heating demand at a time when markets were already tight. EIA says as demand outpaced supply, inventories dropped further, by 1.5 million barrels and 1.2 million barrels for the weeks ending Dec. 6 and Jan. 3, respectively.

Since the week ending Oct.11, Midwest propane inventory levels have dropped by 12.8 million barrels, compared with a drop of 7.3 million barrels for the previous five-year average for that period.

By Jan. 21, prices at Conway had vaulted to a 95 cent per gallon premium to Mont Belvieu – a big change from the early 2010 to November 2013 period, which saw prices at Mont Belvieu as much as 30 cents higher than at Conway.

Need to catch up? Here are some stories you might have missed this past week.

1. Propane pain?Cold weather, high demand and transportation issues have combined to make a sticky situation for propane recently. According to the U.S. Energy Information Administration, the high demand as of late has exacerbated already short propane supplies in the Midwest.

2. A farm bill backtrack.Payment limits made it into both the Senate and House farm bills, but rumors that they may not make it into a final conference report have groups supporting payment limits on high alert.

3. ‘Sustainable’ demand.Consumers will drive change in the food and livestock industries, points out Harold Harpster, retired Penn State University animal scientist. Recent announcements to advance sustainability by McDonalds and Walmart underscore the trend, Harpster says.

4. Nut thieves abound.The soaring value of California’s nut crops is attracting a new breed of thieves who have been making off with the pricey commodities by the truckload, reports Scott Smith of the Associated Press. It’s all part of a new scheme dubbed “fictitious pickup,” Smith says.

5. Eastern editor speaks his GMO piece. John Vogel, American Agriculturalisteditor comments in a recent blog that the move by GMO activists to get Chobani yogurt off Whole Foods’ shelves is puzzling at best –and could bring on questions of politics vs. science.

6. In a somewhat related discussion,a recent decision by Whole Foods to ban produce grown with sludge raises other interesting questions about science, environment and business. Eliza Barclay of NPR discusses the impact of perception.

7. Calling all RFS comments.By now, you’ve heard that the EPA wants to roll back mandatory ethanol production requirements. Also by now, you know they want your input on the proposed plan. But Jan. 28 is your last day, so no matter what side you’re on, now’s the time to tell the EPA. Groups of Senators, Representatives and the National Corn Growers – among others – have already weighed in.

And your bonus (My personal favorite):

Next weekend’s the big one for chicken.Next weekend is the poultry industry’s black Friday equivalent: Super Bowl Sunday. The National Chicken Council estimates that 1.25 billion wings will be purchased and consumed by football fanatics. That’s enough to put 572 wings on every seat in all 32 NFL stadiums, NCC says.

With low commodity prices, it becomes increasingly popular and necessary to take a closer look at inputs.

Growers can utilize nitrogen calculators (free of charge) from several sources to aid in helping to make good business decisions. Iowa State University and Ohio State University both have calculators on their Extension websites, and the University of Wisconsin has an app for iOS and Android devices.

On the Ohio State site-for example- a grower can enter factors such as nitrogen source (28% UAN or anhydrous ammonia), previous crop and corn prices to determine economic return to nitrogen.

As an example, if the following factors are entered on the Ohio State spreadsheet:

Previous crop: wheat

Nitrogen source: UAN 28%

Price/ton: $350

Corn price: $4.08/bushel

The following data is produced:

Nitrogen price/pound=$0.63

Lowest recommended N rate: 166 lbs actual N

Maximum return to N rate: 177 lbs actual N

Highest recommended N rate: 189 lbs actual N

The OSU spreadsheet allows growers several previous crop options, while the Iowa State site allows for only corn and soybean rotations. The Iowa State site also has a link to a publication outlining study results and rationale behind regional N recommendations.

The “supply” side of the story continues to keep the same bearish tone, “our ending stocks are more than double that of last year,” and possibly moving even higher in the days and weeks ahead. Meaning, in my opinion, we are NOT going to get any type of major supply side rally between now and planting season. Yes, you could argue a reduction in Argentine corn, but we won’t know the final verdict on the Brazilian second-crop corn until spring, so South America remains somewhat in limbo.

Net-net, the only real bullish horsepower will have to come from the “demand” side of the equation. The problem is I am not so certain corn used for ethanol can push a whole lot higher, and with cattle and hog herd numbers less than impressive a major jump in fee usage seems out of the questions. That leaves us with “exports.” Could we eventually push exports north of 1.7 billion? Sure, but it would be on lower prices not higher prices. Could China step in and start to make purchases in an attempt to rebuild their domestic supply pipeline? Sure, but again probably would happen on lower prices not higher prices.

Bottom-line, in a bull market you either have a “supply” story or a “demand” story that fuels the fire. In the best of all worlds, like the past few… you had BOTH. You had a major “supply” story in the fact the world’s top corn producer (US) had horrific growing conditions. You also had a major “demand” story, in the fact, corn was becoming an energy source and ethanol was chewing through an extra 500 to 1 billion bushels of supply each year. Now all of a sudden the “supply” story is gone as the US bounces back by producing a NEW record corn crop and global ending stocks move to higher levels. Demand has to now become our driving force. In my opinion, with about half the horsepower, a lot less torque and not near the excitement of a “supply” side story, “demand” will have a very tough time getting much traction or find the power to push us back up the hill.

Could a corn acreage surprise be in the works from the March 31 Prospective Plantings report? Don’t rule one out. While many analysts—along with the futures market—have dialed in about 92 million corn acres, some aren’t so sure. Darrel Good, ag economist at the University of Illinois, looks for only a “marginal” shift in corn acres for 2014, possibly no change at all. If he’s correct combined with trend yields, it hardly adds up to buoyant prices. Still, he looks for some continuous corn to shift back to a rotation with soybeans.

“I don’t see the math that gets you there (to 92 million acres),” Good says. Corn acreage was 95 million acres in 2013 and Good admits to being about the only market analyst around who sees about the same for this year. Buttressing his view, however, is one key fact: prevent plant totaled 8.3 million acres in 2013. In total, the potential is there for 9 million to 10 million of crop acres planted in 2014 that was not in 2013. “Will that all go to soybeans? I don’t think so,” Good says. For the last three years, corn acreage was 91.9 million acres in 2011; 97.1 million in 2012; and 95.4 million last year.

Unlike corn, with a large price decline in recent months, soybean prices have held stronger. As a result, soybean returns relative to corn suggest a substantial acreage shift. But that’s only what’s on paper today. The price spread between corn and soybeans is likely to narrow between now and planting, Good says. “The trend is lower for soybeans.” Already, new crop beans (the November 2014 contract) are discounted to nearby contracts, at $11.20. With basis of 40 cents that pushes a farm price down to just $10.80. For corn, Good thinks the most likely scenario not only for 2014 but the next several years is low- to mid-$4 corn prices.

Dan O’Brien, ag economist at Kansas State University, notes that while USDA pegs Brazil’s soybean crop at a record 89 million tons, “Brazil’s own people are predicting 95 MT. A lot could change (on relative U.S. returns of corn versus soybeans) by March, April, May,” O’Brien says. The battle for acreage between corn and soybeans will likely go back and forth between now and then, he believes. At the moment, relative profits of soybeans beat corn, so he thinks an increase in bean acreage and a cutback for corn is likely. Even so, he acknowledges that there is still 90 to 120 days before planting and economics over that period could change. Come planting time, farmers will compare returns versus cost of production, which may look somewhat different than they do today, O’Brien says.

Frayne Olson, ag economist at North Dakota State University, thinks 91 million to 92 million acres of corn for 2014 is most likely. “That’s only a 4% reduction.” In Olson’s view, soybeans, wheat, cotton and other crops could easily boost acreage by 4 million collectively. While he does not look for major acreage shifts in the heart of the Corn Belt, on the fringes, north, west and south, producers are likely—not to eliminate corn—but to reduce it relative to more traditional crops.

Splitting the difference between low and high corn acreage projections is Rabobank, which in its 2014 Agri Commodity Markets Outlook predicts a 3% cutback in U.S. acreage to just over 93 million acres. Rabobank looks for a 2.6% increase in U.S. soybean acreage. “Soybean prices are poised for a substantial adjustment downward from current levels,” the report says. Rabobank predicts that corn futures will be $4.30 in first quarter 2014 but decline to $4.10 by the fourth quarter (average price of the active contract throughout each quarter). Soybeans will decline from $12.50 in the first quarter to $10.70 by the fourth quarter. Rabobank also predicts a 1 million acre increase in wheat acres due to stronger returns relative to corn. Wheat prices are forecast to be stable through the year, from $6.40 to $6.45, a significant premium to corn.

There has been a lot of talk lately about the South American bean crop and how it will affect our prices. Below is an article that was posted on Agriculture.com that provides some insight into this question.

Since the release of the Government crop report a couple weeks ago, the direction of prices for both soybeans and corn has been mostly higher. A look at the long term charts for both grains shows good odds for a trend higher from now through spring.

It is easy to understand why corn prices might trend higher during this period. Most of the world supply of corn is grown in this country. Therefore when harvest is over and bin doors are locked higher prices are necessary to encourage farmers to bring corn to town. At least that is a widely held theory. Until last week’s report it appeared that the theory was not going to hold water in 2013-2014. Then the bullish numbers showed up on the report and the old theory seems logical again.

The story is a little different for soybeans. With at least half of the world crop now being grown in South America, it seems logical that prices would drop as South American beans become a factor in the world market. Instead it is quite common to see soybeans rally going into spring as they have been this week. How can this happen with a big crop in this country and an even bigger crop from south of the border?

It is common knowledge that odds are good for prices in this country to rally in the early summer as traders evaluate the possibility of production problems with the growing crop. The most likely time for that rally is June. The dead cat bounce is also well known. The most likely time for that market move is October and November. The timing of these two moves are based on growing and market conditions in the United States. However, the production conditions south of the border are half a year out of phase with those in the United States.

Just as growing conditions are half of a year out of sync, so is the market psychology. If ideas are correct, the dead cat bounce in this country should come at the approximately the same time as the spring rally in Brazil. If that is the case market news now should be concerned with drought or excess rain down south. In fact just this morning a farm news show expressed concern about the prospects for dry weather in Argentine. That being the case, the spring rally we will probably get in this country should match the dead cat bounce for South American soybean farmers. If the seasonal trends follow true to form, drought or excess rain concerns in this country should come about the time South American soybeans are rebounding in price following their harvest low. This would match the June period mentioned earlier.

No one can say with any certainty why grain prices move as they do. Anyone who farms as a business responds psychologically to price movements and growing conditions. This theory is just that, a theory. However, these moves repeat many times over so many years. I have used the seasonal charts as marketing tools long enough that I no longer get frustrated by seemingly illogical price moves. Whether you accept this explanation we all need to have a way to cope with price moves that do not seem to follow logic based on fundamental factors.

It’s no secret that getting calves off to a great start takes consistency and the ability to offer calves the nutrients they need, when they need them most. Today’s leading colostrum replacers, milk replacers and calf starters are all equipped with the most cutting edge technologies that aim to deliver the nutrients needed for optimal weight gains and structural development. Despite all the efforts to keep calves growing and developing through the first 12 weeks, it is not uncommon for calf nutrition to slough off once calves are weaned.

Losing focus on calf nutrition post-weaning can not only slow growth rates, but can also hinder rumen development and subsequent lifetime profitability. That’s according to Dr. Dari Brown, director, livestock young animal marketing and business with Purina Animal Nutrition.

The role of the rumen in the young calf

Calves are born with a small, underdeveloped rumen compared to other stomach compartments. Rumen development is established in the first six months of life, says Dr. Brown and can be influenced by diet and nutrition, so it becomes increasingly important for calf raisers to turn their attention to rumen health and development as calves transition to a diet higher in fiber.

Rumen development – A reflection of the calf diet

While on farm, Dr. Brown often notices that some calf raisers rely on forages alone to keep calves’ rumens developing post-weaning. Forages do not provide balanced nutrition or the correct volatile fatty acid (VFA) profile, especially butyrate to promote rumen papillae development. Butyrate is believed to stimulate papillae growth in the rumen as the primary substrate for energy to the rumen wall.

A key element to a calf’s rumen development is the ingestion of grain. Grain is necessary for sufficient VFA production, which results from microbial digestion and therefore papillae growth. A recent study conducted at the Purina Animal Nutrition Center found that when calves were fed a full potential milk program for seven weeks along with free-choice grain over a 12-week period, they had well developed rumen papillae similar to a conventional milk program, which allows for more absorption of nutrients into the blood stream.[1] Also, calves on the full potential program in the study were heavier and taller than conventionally fed calves.

Feed a diet, formulated for the developing calf

To make sure that calves’ rumens are developing to their fullest potential, Dr. Brown recommends that calf raisers transition calves to a calf grower feed, formulated to support rumen development around 12 weeks of age. When fed at the recommended level along with free-choice water and hay, Dr. Brown notes that a grower feed can provide the sufficient VFA production to develop longer and more developed rumen papillae, necessary for increased nutrient absorption.

Mercer Landmark’s Wheat Health Program shined last year even though it rained a majority of the time during the wheat planting season. Many growers have already started signing their wheat acres up for this year.

The wheat health program is a small investment that packs a huge return. Included in one’s return is typically healthier wheat, lower vomitoxin levels, heavier test weight and increased yields.

For being enrolled in the health program, Mercer Landmark will have a scout keeping an eye on one’s wheat to ensure proper application timing. The main component behind the program is the Prosaro® fungicide which is applied at heading. (Refer back to my blog written in May 2013 “Boosting Wheat Yields” to unlock the power behind Prosaro®.)

I enrolled my family’s farm into the wheat health program last year and they saw a 15 bushel increase! Although I cannot guarantee that will be the outcome every year, the health benefits the wheat received were worth the investment alone – 15 bushels was just a huge bonus! Needless to say, I didn’t have to enroll my family for the wheat health program this year – they signed themselves up!

Contact your local Mercer Landmark rep today and get enrolled into the wheat health program. You’ll be glad you did!